The Hendersonville Industrial Development Board unanimously named members Mike Fussell and Ed Spurlock and Legal Counsel Keith Dennen at last week’s meeting to work with the Ad Hoc County Committee to Investigate the Tax Increment Financing issue. County Commissioner Jerry Stone, Ad Hoc Committee chairman, County Finance Director David Lawing, County Law Director Lean May Dennen, and outside counsel Rhea Bucey attended the IDB meeting.

New Hendersonville Industrial Development Board member Ed Spurlock takes the oath of office Thursday. Spurlock was appointed by the Board of Mayor and Aldermen on Nov. 8, 2011. Member Mike Fussell (L) reviews paperwork before the meeting as Shelton Hatcher looks on. Hatcher was named to board Oct. 25, 2011. Photo by Jesse Hughes/HENDERSONVILLE STANDARDKeith Dennen presented a broad-brush overview of the General Assembly’s passing TIF legislation and the history and use of it for the TIF/Halo Properties bond project from 2006 until today and how successful it all was. The TIF project required both county and city authorization for the IDB to issue bonds as the financing vehicle for infrastructure to support development of Indian Lake Village by Halo Properties, LLC.

“What is the risk of this project to the City of Hendersonville and the risk to the county?” Fussell asked after Dennen’s presentation. “None,” Dennen responded. Taking full use of home field advantage, Fussell declared that current questions about the TIF were coming from “Monday morning quarterbacks.”

The Ad Hoc Committee had met the previous two Thursdays and heard representations from the City of Hendersonville and Bucey but had not heard from the IDB. It voted the previous Thursday to take up the invitation to attend the IDB meeting.

The IDB suspended the rules to allow county representatives to speak. Commissioner Stone and Bucey advised that the issue from the county perspective was not about whether the TIF project and development were a success as no one had ever questioned that. The issue, according to them, was whether taxpayer dollars are being wasted and could be better spent.

Stone noted in particular that updates on the TIF project promised in November and December 2006 had not been forthcoming. “As of today, we have never received a report,” Stone stated.

“We are not here to criticize TIF financing,” Bucey stated. The county’s concern: “Nobody wants to waste those tax revenues.” Over $6 million in tax collections has been paid out to the project but only $500,000 went to reduce principal. As to Dennen’s presentation, Bucey stated, “Those are wonderful statutes and those are wonderful achievements. We think there is a lot of wasting of tax revenues.”

Bucey credited Lawing with having reconstructed financial information on which the county is relying due to the lack of reports over the last five years. He said that during a conference call with Fifth Third Bank the county had asked if they are any errors in Lawing’s report. The response was no, according to Bucey.

Bucey presented a high-level two-page summary of the hundreds of pages behind Lawing’s report. The 2007 Series A $15 million and Series B $3 million bonds in the $18 million issue had basic costs of $335,200 in issuance costs, $1,719,651 in interest paid to bondholders, and $7,000 in trustee fees for a subtotal of $2,061,851.

“If that is all we had to talk about, we wouldn’t be here today,” said Bucey. He questioned costs of the Letter of Credit that resulted in fees “almost as much as the interest that’s been paid to the bondholders.”

Fees for the required $18 million Letter of Credit to protect the bank cost $1,680,189 through November 2011. The net cost of interest rate swaps paid to Fifth Third Bank cost $2,348,036. Other fees to Fifth Third Bank were $94,722 for a subtotal of $4,122,947.

That brought the subtotal of the two to $6,184,798. Adding in the $500,000 principal payment brought the grand total to $6,684,798. The remaining principal due is $17,500,000.

Bucey characterized the deal at one point as “a bloodletting of taxpayer dollars.” He noted that with the expiration of Series B LOC in 2012, “the size and amount of the blood loss will go down somewhat.”

The swaps, a convoluted hedging transaction that both Dennen and Bucey deferred from trying to explain, are a key issue raised by the county due to significant losses in a low-interest environment expected to last through 2014. In subsequent questioning, the IDB - with three known bankers on board - requested a Monday-morning-quarterback version of what things would look like if interest rates had remained the same as they were when the bonds were issued in March 2007.

A Feb. 7, 2012, memorandum from the Ad Hoc Committee to the IDB states: “It is in the interest of the citizens of Hendersonville and Sumner County, (a) to try to find a way to stop this wasteful use of the tax revenues from the Indian Lake EDA as soon as possible; and (b) to determine if there is any legal basis for the Bank to compute its obligation under the swaps by a method or formula that is different from the rate of interest which the IDB must pay the Bondholders.”

Near the end, IDB Chairman John Steinhauer testily suggested, “You are wasting our time and we are wasting your time.” John Zobl smoothed things over and suggested a way to work together leading to naming its representatives.

After a lull during which county representatives left only to return, the IDB voted to extend the LOC set to expire in 2012 two more years. Fees are paid on a year-to-year basis. The IDB, loathe to be tagged borrower throughout, acted to extend it because Halo is in receivership and unable to do so. Zobl pointed out, “Normally the borrower would do it. This is not normal.”

The newest member Spurlock, appointed by BOMA Nov. 8, took the oath of office. Shelton Hatcher was also recently named to the board, having been appointed Oct. 25.

Among those observing the meeting were Hendersonville Alderman Fred Qualls, the Hendersonville Board of Mayor and Aldermen's representative to the IDB; Alderman, Finance Chairman and Vice Mayor Garry Forsythe; and Alderman Jack Long. Long was the lone no vote against TIF, according to Dec. 19, 2006, BOMA minutes. 

By Jesse Hughes